A License to Sell

Few things measure the state of the software market more than the sale of new licenses. And for many companies, income from license revenue is either down in dollar amount, down as a percent of overall revenue, or both.

Those figures are no great revelation to people who sell software for a living and survived the post-Y2k drought by selling services and upgrades, not new installations. But the impact on how business is conducted was illustrated recently by changes at Made2Manage, an Indianapolis-based maker of manufacturing and distribution software.

M2M was recently acquired and taken private by Battery Ventures, which manages $2 billion in venture capital and which has a history of investing in software. As explained by Jeff Tognoni, who came from Battery to take over as CEO of M2M, it’s a maturing industry and companies that invest in software must use different investment strategies than in a growing market. As a result, M2M will concentrate on selling to its installed base, not on aggressive growth, a strategy that impacted the decision to concentrate recent job cuts in the vendor’s sales and marketing staff.

The last financial results released for M2M illustrate Tognoni’s point. In the second quarter a year ago, income from software license sales represented 36.7 percent of all revenue. In the June quarter, that figure was down to 28.1 percent.

The situation is no different at many other companies. Exact Software, the Dutch company that owns the Macola product line, saw dollars from license sales drop by 30 percent over the last two years, and the company noted that sales of CRM software helped counteract weak demand for back-office systems. In its recent quarter, Epicor finally saw license income rise as a percent of sales after several quarters of declines, although overall revenue declined. U.K.-based Sage, which doesn’t break out license revenue, said only that in its first half it maintained the level of new license sales in the U.S. with prior years.

As Tognoni says, about everyone who needs new software has it. It’s a message that has been issued in the past by Ivan Epstein, CEO of Softline, a company soon to be acquired by Best Software, and by Best itself.

When markets mature, all players must change to meet the new conditions. They hire, spend, and invest differently. And the people who sell software for a living must sell differently. Of course, most know that. The ones that don’t probably aren’t around anymore anyway.